Islamic banks may be viewed as too small to succeed as far as driving new fintech innovation is concerned, but would Shariah banks be able to break free from the constraints of the lack of economies of scale by joining forces to act as a single unified fintech force?
Likely. And the industry would find out sooner rather than later with the emergence of ALGO Bahrain – the first fintech consortium of Islamic banks anywhere in the world designed with the purpose of overcoming the barriers of cost, scale and expertise faced by most Shariah financial institutions, which in general, are believed to be at a competitive disadvantage as compared to their conventional counterpart due to their non-mainstream status and therefore smaller resource base.
“This is a strategic company we expect to bear fruit over the long term, as the best way to approach the fast-moving fintech industry and ensure Islamic banking stays ahead of the game,” said Abdulhakeem Al Khayyat, the managing director and CEO of KFH Bahrain, who added that the real potential of the Shariah banking industry is at least triple of where it stands currently. “With innovative business models and new revenue and cost structures, the industry should be eyeing an asset base of US$9 trillion within five years, compared to the current US$2 trillion. Anything short would be failing our customers.”
So far, three banks – Al Baraka Banking Group, Kuwait Finance House Bahrain and Bahrain Development Bank – form this band of banks, but the consortium is expected to include another eight institutions next year, from both Bahrain and the wider GCC.
Under the ALGO banner, the banks will leverage on each other’s existing infrastructure, network, customer base and resources to jointly invest in new fintech start-ups, develop new products and solutions and conduct research.
While the founding banks are keeping mum about the management line-up of the new setup, they have revealed their business plans over the next five years: to deploy 15 fintech platforms and develop 35 proofs of concepts.
The consortium may be newly launched, but as it is advised by fintech enabler Finocracy, which have been actively engaging the ecosystem over the last few years especially since EY’s former global head of Islamic banking Ashar Nazim took the reins as CEO in September, ALGO Bahrain already has made several headways including signing six agreements with European and Singaporean entities for the development of fintech solutions for Islamic banks. The first platform to be rolled out is a peer-to-business crowdfunding platform targeting the SME sector.